market overview sccai summer conference july 31, 2008 state of the market greg harris executive vice president of investments, marcus & millichap

market overview sccai summer conference july 31, 2008 state of the market greg harris executive vice president of investments, marcus & millichap

agenda 1. THG market overview 2. year-to-date transactions: 100+ units 3. tighter underwriting + higher yield expectation 4. county market trends 2007 vs. 2008 rent growth vacancy rent vs. 30-year fixed mortgage housing affordability 5. multi-family supply constraints 6. shadow rentals 7. conclusion

thg market overview market focus: los angeles, orange, & ventura counties product type: multi-family, 20+ units

precipitous fall in transactions 2008 transactions ytd 100+ units los angeles county PROPERT ADDRESS CITY YEAR UNITS SALE UNIT $ SQ LIST CO BUYER SELLER COE DATE Y BUILT PRICE COST FT DATE EC AP palazzo 348 s hauser blvd los angeles 2005 611 $273,800,000 $448,117 $351 N/A N/A jp morgan aimco 3/21/2008 palermo 4315 w 182nd st torrance 1965 130 $25,100,000 $193,077 $225 1/28/2007 5.54 realty center mgmt. fairfield residential 1/31/2008 pacific pointe 13811 shoemaker ave norwalk 1968 123 $18,000,000 $146,342 $181 2/22/2008 6.10 legg mason madonna properties 5/5/2008 sevon gardens 3601 w rosecrans ave hawthorne 1974 100 $6,202,000 $62,020 $99 N/A N/A club pacifica investments alexandra mkitarian 6/17/2008 orange county prado 24505-24531 lois alisos laguna hills 1978 360 $77,000,000 $213,889 $249 5/30/2008 4.70 tgm assoc. rreef america 5/30/2008 alexan 21041 osterman rd lake forest 2003 131 $43,000,000 $328,244 $300 12/4/2007 4.45 black rock trammell crow 1/15/2008 brookstone 7400 artesia blvd buena park 1977 184 $31,600,000 $171,739 $217 8/14/2007 4.31 calera investments western national 4/1/2008 bel age manor 1660 w broadway anaheim 1989 180 $24,830,000 $137,945 $231 5/22/2007 5.04 springdale preservation ventura county hyuk lee 2/5/2008 westlake 601-603 hampshire rd westlake village 1989 253 $68,500,000 $270,751 $283 2/13/2008 4.30 imt inc. bay corp. 4/28/2008

tighter underwriting + higher h yield expectations ti terminal cap rates on the rise 750% 7.50% - class a has increased by 50 basis 7.00% points to 5.75-6.00 6.50% - class b Has increased by 75-100 6.00% basis points to 6.00-6.50 -class c has increased by 150 basis 550% 5.50% points to 6.5-7.00 rent growth projections have decreased approximately 100 basis points over the last 6-12 months - investors have shifted from aggressive rent growth of +5% to 3-4% greater emphasis on in-place trailing noi unleveraged irr yields have increased 100-200 basis points for core assets 5.00% 12.00% 11.00% 10.00% 9.00% 8.00% 7.00% 6.00% Class A Class B Class C Class A Class B Class C 2007 Terminal Cap 2008 Terminal Cap 2007 Unlev IRR 2008 Unlev IRR

los angeles county county market trends 2007 vs. 2008 orange county ventura county vacancy - 20 basis point increase to 3.8% from 2007 rent growth - decreased 360 basis points from 4.9% to 1.3% with an average asking rent of $1,445 cap rates - 5.4% with the ongoing economic uncertainty pushing cap rates up through 2008 into early 2009 vacancy - 40 basis point increase to 4% from 2007 rent growth decreased 460 basis points from 5.5% to 0.9% with an average asking rent of $1,550 cap rates - increased 90 basis points to 5.8% in Q1 2008 from 2007 vacancy - 30 basis point increase to 4.4% from 2007 rent growth decreased 430 basis points from 4.8% to 0.5% with an average asking rent of $1,458 cap rates - increased 40 basis points to 5.7% in Q1 2008 from 2007 Q1 - Q2 2007 vs. Q1 - Q2 2008* avg. days on market - 133 days vs. 148 days sales volume - decreased 52% to $994,917,316 for 20+ unit transactions sales velocity - decreased 30% to 134 Q1 - Q2 2007 vs. Q1 - Q2 2008* avg. days on market - 135 days vs. 151 days sales volume - decreased 2% to $278,201,000 for 20+ unit transactions sales velocity - decreased 9% to 20 Q1 - Q2 2007 vs. Q1 - Q2 2008* avg. days on market N/A sales volume - decreased 57% to $85,725,000 for 20+ unit transactions sales velocity - decreased 20% to 4 transaction data +20 units current through june 30, 2008 data sources: reis, marcus & millichap, costar, and thg marketlink

rent growth forecast los angeles, orange, and ventura county 8.0% 71% 7.1% 7.0% 6.0% 5.0% 4.0% 30% 3.0% 46% 4.6% 4.7% 31% 3.1% 5.9% 5.9% 4.5% 5.5% 4.8% 4.9% 6.8% 6.3% 4.2% 4.3% 4.3% 3.9% 3.2% 3.6% 3.2% 2.6% 3.2% 2.0% 1.3% 1.0% 0.0% 0.9% 0.5% 05 06 07 08 09* 10* 11* 12* Los Angeles County Orange County Ventura County * FORECAST data source: reis

vacancy forecast los angeles, orange, and ventura county 5.0% 4.6% 4.6% 4.7% 4.5% 4.0% 4.4% 41% 4.1% 4.4% 4.0% 4.1% 4.2% 4.0% 4.4% 4.5% 4.5% 4.1% 3.6% 3.8% 35% 3.5% 3.4% 36% 3.6% 36% 3.6% 3.3% 3.2% 3.0% 3.1% 3.1% 2.5% 05 06 07 08 09* 10* 11* 12* Los Angeles County Orange County Ventura County * FORECAST data source: reis

los angeles county average rent vs. 30-year fixed rate mortgage data sources: freddie mac, la almanac, dataquick payment assumes: 20% down, average annual 30-year fixed interest rate for each year, and 1.3% tax/insurance

diminishing affordability gap 2007 vs. 2008 rents holding firm cost of home ownership has dropped considerably data source: dataquick condo and sfr payment assumes: 20% down, 6% interest rate, 30-year fixed, and 1.3% tax/insurance

limited supply of new multi-family completions in 2008 los angeles county orange county ventura county type units type units type units apartments 4,036 mixed use 1,803 total 5,839 apartments 532 mixed use 66 total 598 apartments 54 mixed use N/A total 54 existing supply 750,554 existing supply 199,630 existing supply 72,683 supply increase 0.78% supply increase 0.30% supply increase 0.07% increasing population of prime renter demographic increasing rents decreasing vacancy? source: twr/dodge pipeline 2008

rising competition: shadow rentals competition from for-rent condos and single-family homes is causing downward pressure on rent growth, primarily at the upper end of the rent spectrum. the number of vacant condos and houses has surged in the second quarter of 2008, due in part to a spike in foreclosures and condo reversions. los angeles foreclosures are up approximately 108% to 21,632 in Q2 2008 vs. same period last year orange county foreclosures are up approximately 146% to 7,348 in Q2 2008 vs. same period last year ventura county foreclosures are up approximately 118% to 2,303 in Q2 2008 vs. same period last year - montecito * chandler partners developed an 85-unit condominium project with plans to sell the condos individually. in light of the market s state, they sold the asset as apartments to sobrato development in december 2007 for $44 million. - warner center apartments condominiums * troxler, with partner lehman brothers, acquired the 1,279 unit warner center apartments from aimco in september 2004 as a condo conversion project. to date, less than 50% of the project has been sold, troxler has been taken out of the project and the remaining units are being reverted to rentals.

limited distressed opportunities strong operations are limiting the pool of distressed assets to: - failed conversions - high-risk developments - speculative transactions small broken condo opportunities typically less than 75 units high risk developments - suncal orange county portfolio surrendered to lender * suncal s initial plans to tear down and redevelop were brought to a halt * currently on the market at market pricing - $70m for 362 units * fell out of contract in the mid 60 s

conclusion slower rent growth is dampening market fundamentals the development pipeline will continue to narrow due to caution and more conservative underwriting and lending requirements rising competition from shadow rentals, especially at upper end of rent spectrum reversing homeownership and demographic shifts will boost overall renter demand, however vacancy absorption and rent growth will be slow in the short run due to the shadow rental market and doubling up the renter-by-choice demographic has become more discerning flight to quality high barriers to entry supply constrained